Board of Trustees of the Kentucky School Boards Insurance Trust v. Joseph N. Pope Jr Deputy Rehabilitator of the Kentucky School Boards Insurance Trust Workers' Compensation Self-Insurance Fund
528 S.W.3d 901
| Ky. | 2017Background
- KSBIT (Kentucky School Boards Insurance Trust) is a trust created in 1978 by an Agreement and Declaration of Trust to provide workers’ compensation and property/liability self-insurance and risk-management services to members of the Kentucky School Boards Association (KSBA).
- KSBA, a private 501(c)(4) membership organization, executed the Trust Agreement; individual school districts are not signatories and must apply to participate in KSBIT.
- KSBIT’s workers’ compensation and property/liability funds ran long-term deficits; the Department of Insurance intervened and the Franklin Circuit Court later placed the funds in rehabilitation.
- The Deputy Rehabilitator sued the KSBIT Board for negligence, negligence per se, and breaches of fiduciary duty relating to mismanagement of the Trust funds; KSBIT moved for summary judgment asserting governmental immunity.
- The Franklin Circuit Court denied immunity after applying the two‑prong Comair test (parental creation + integral state function), finding KSBA — not local school districts — was KSBIT’s creator and that providing insurance is not an integral state function.
- The Kentucky Supreme Court affirmed, holding KSBIT was created by KSBA (a nongovernmental entity) and that administering a self‑insurance fund is a proprietary/market function, not an integral state governmental function.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was KSBIT created by governmental entities entitled to immunity? | Deputy Rehabilitator: KSBIT was not created by governments; thus no inherited immunity. | KSBIT: Created for and on behalf of local public school districts, which are governmental and have immunity; KSBIT inherits that immunity. | Held: KSBIT was created by KSBA (a private 501(c)(4)), not individual school boards; KSBIT does not inherit governmental immunity. |
| Does funding of the trust with public (state‑appropriated) money make school boards the trust’s creators for immunity purposes? | KSBIT: Contributions by school districts (public funds) make the districts KSBIT's parents for immunity. | Deputy Rehabilitator: Funding does not change the entity that legally created KSBIT. | Held: Malone does not support transferring contributors’ immunity to administrators; funding does not make school boards KSBIT’s creators. |
| Does KSBIT perform a function "integral to state government"? | KSBIT: Providing statutorily‑mandated workers’ compensation and property insurance to school districts furthers the governmental function of education. | Deputy Rehabilitator: Procuring/managing insurance is a proprietary market function, not the provision of education itself. | Held: Providing insurance/self‑insurance is proprietary and not an integral statewide governmental function; immunity fails. |
| Was KSBIT analogous to other immune instrumentalities (e.g., airports or direct education activities)? | KSBIT: Its service directly supports education and should be treated like services deemed governmental (e.g., on‑campus housing). | Deputy Rehabilitator: Those analogies fail because KSBIT performs services readily available from private entities. | Held: Distinguishable; KSBIT resembles private insurance market actors and not integral infrastructures like the airport in Comair. |
Key Cases Cited
- Comair, Inc. v. Lexington-Fayette Urban County Airport Corp., 295 S.W.3d 91 (Ky. 2009) (establishes two‑prong test: entity must be created by a governmental agency with immunity and must perform a function integral to state government)
- Yanero v. Davis, 65 S.W.3d 510 (Ky. 2001) (local school boards perform an integral state function when providing education)
- Franklin County v. Malone, 957 S.W.2d 195 (Ky. 1997) (participation in a self‑insurance fund does not constitute an implied waiver of governmental immunity)
- Coppage Constr. Co. v. Sanitation Dist. No. 1, 459 S.W.3d 855 (Ky. 2015) (analysis for whether an entity performs an integral state function; governmental vs. proprietary distinction)
- Kentucky Center for the Arts v. Berns, 801 S.W.2d 327 (Ky. 1990) (immunity extends only to departments/boards that are integral parts of state administrative organization)
- Kentucky River Foothills Dev. Council, Inc. v. Phirman, 504 S.W.3d 11 (Ky. 2016) (illustrates limits on immunity for entities serving discrete groups rather than statewide governmental functions)
- Breathitt County Bd. of Ed. v. Prater, 292 S.W.3d 883 (Ky. 2009) (activity directly furthering education may be governmental; fact‑specific analysis distinguishes such activities from proprietary functions)